Does the Due on Sale Clause in a Mortgage Impact your Estate Plan?

Does a due on sale clause within a mortgage in Minnesota impact an estate plan?

I believe every person or family wishing to fund a trust or use a transfer on death deed should reduce their risk of accelerating a due on sale clause.

Unfortunately, every mortgage is different because mortgages are created by hundreds and thousands of financial companies.

None the less, here is a brief outline I hope you find helpful for our next appointment if you see the need.

What is a due on sale clause?

First, what the heck is a due on sale clause? To keep it simple, a due on sale clause is a clause found in a contract or mortgage.

When I help a family with their estate plan, I recommend reading and interpreting the due on sale clause.

The hard part is finding it or confirming a mortgage does not have a due on sale clause. Sometimes, a mortgage document will use big bold headings to help.

Other times, you will see a clause called “acceleration clause” or “never do this clause” without the bank’s permission. Just kidding on the “never do this” part. Rarely, will it be that black and white.

Where will you find your due on sales clause?

When in doubt, I always read the mortgage. When my Client is unable to find a copy of their mortgage, I will do one of two things:

Visit the recorder’s office generally found in the same location as the County’s court-house, or

Ask the bank for a courtesy copy.

To help your search, the recorder’s office in Ramsey County is here and the recorder’s office in Hennepin County is here.

Federal definition of a due on sale clause in a mortgage

Every so often I will come across a person trying to spell out fancy federal rules. In my experience, the National Housing Act helps use define a due on sale clause for mortgages under rule 1701j.3.

As you can see, this rule says a due on sale clause gives a lender the right to seek money form a buyer if any or part of their property is sold or transferred without the lender’s written consent.

In a nutshell, this is why I always seek and acquire WRITTEN consent from a bank before I record or fund a Client’s trust. In fact, I will literally provide the bank with a final copy of the document(s) that need to be recorded.

Minnesota definition of a due on sale clause

Because I am located in Minnesota, I love the idea of looking at Minnesota’s laws on a due on sale clause too.

Minnesota has a chapter of statutes devoted to mortgages. If you are looking for help falling to sleep, look at Chapter 47. The rules specifically apply to financial corporations.

On the other hand, Minnesota statute ‌47.20 speaks to the lending authority of a bank. As a starter, most case law in Minnesota devoted to the discussion of a due on sale clause in a mortgage utilize subdivision 6 and 6a.

Exceptions to a due on sale clause

If you hang around enough lawyers, you will eventually hear about exceptions to a rule.

Every situation is different and unique. Assuming a piece of real estate is a person’s primary residence and they do not live in a housing complex, here are a few of my favorite exceptions to the National Housing Act and statute 1701j.3. Putting it another way, here are a handful of reasons when a due on sale clause is not accelerated:

One of the joint tenants dies and their share is transferred to the remaining joint tenant(s),

The property is transferred to a relative due to a death,

The property is transferred to a spouse or children of the borrower,

A transfer due to a divorce, or

A transfer into a trust and the borrower remains the beneficiary.

Other significant cases

Thank you for sticking with me on this very complicated topic. As you might have heard, banks and home owners sometimes disagree, which inspires litigation.

Here are a handful of notable cases to consider, as we try to define what will happen or not happen with a due on sale clause: Viereck v. Peoples Sav. & Loan Ass’n, 343 N.W.2d 30 (Minn. 1984), Akopyan v. Wells Fargo Home Mortgage, Inc., Cal.App. 2 Dist., April 4, 2013, and a United States Supreme Court case called Cuomo v. Clearing House Ass’n, L.L.C., 129 S.Ct. 2710.

Best practices

I believe the best strategy is to avoid litigation. Sometimes, this can be accomplished by seeking the written consent from the bank or mortgage company or both or anybody who has an interest.

Before transferring property

Thus, before you fund a trust or transfer a piece of property using a transfer on death deed (TODD), make sure you know what, how and why.